Is Exit Planning Worth The Time And Money?

When we talk to business owners about the value of exit planning, we are talking about orchestrating a business exit that fulfills their unique personal and financial goals. More often than not, the business is the only asset with the potential to deliver results the owner wants and needs.

Since tackling a task of this magnitude can be daunting, owners sometimes ask whether devoting the necessary time and money to this project is really worthwhile. Our work in the exit planning arena has taught us a few things.

Watch Your Emphasis

Good exit planning can be the difference between a successful ownership transition and a complete derailment of the departure, as well as all the owner’s goals.

Exit planning is not, as others might have you believe, simply a thoughtful sale of a business. It is much more. As a business owner, your emphasis should be on the planning, which will in turn support the exit. Planning is the key concept.

It all starts with understanding your own objectives. When an owner sets her objectives in an exit planning context, she does so methodically and proactively. Owners who wait until entering the business sale process to decide how much cash they want and need from their companies, do so reactively. Often, they make hasty decisions or are blinded by attractive bait held out by less-than-scrupulous buyers.

Early in an organized and systematic exit planning process, owners place a realistic value on the company. If an owner has one foot out the door or suffers from the fatigue of ownership, finding out the company is not worth what she had hoped is a painful experience. Even more painful is the subsequent rededication of effort to building the value of the company.

What’s even more powerful than setting objectives and understanding company value, however, is the
emphasis exit planning places on building and protecting business value. Without a doubt, this is the element of exit planning that gives an owner the biggest bang for the buck.

Owners often don’t realize that focused attention on building value is an essential part of the exit. If I’m leaving, why would I build value?, you might think. Keep in mind that exit planning includes a heavy emphasis on planning and the result is a more successful exit.

Let’s Be Specific

Take a look at just one of the many ways exit planning shifts the emphasis to planning for the benefit of the exit. A technique we use to motivate managers to remain with a company long-term and after a sale is the “stay bonus.”

An effective stay bonus:

Gives key managers a reason to stay

Is structured so that it increases the value of the company

Includes a penalty - usually in the form of a non-compete covenant - that deters key managers from taking key clients, vendors or trade secrets with them, should they leave before or after the sale

The stay bonus is a carefully structured compensation program with details designed to fit your particular business needs and timeline. It encourages key managers to support a sale of the business and allows them to benefit financially from the successful sale.

The stay bonus supports the transition from old ownership to new by aligning the motivations of the departing owner, the new owner, and the management team. Coupled with restrictions on what those managers can do if they leave the company, the overall stay bonus package creates real value.

Think about it – if a buyer is evaluating two businesses that are exactly the same in all other respects, the one that can document an increased likelihood that top management will stay and work hard for the new owner will more likely get the offer, and at a higher price.

Owners who participate in an intentional exit planning process often find it is indeed well worth the time and money devoted to it. If you’d like to learn how exit planning might, in turn, actually save you time and money, please contact us.

The Cornerstone team includes former C-Level executives, successful entrepreneurs and advisers who offer unmatched experience in delivering advanced, custom-tailored, results-oriented solutions for business leaders. As a member of the Business Enterprise Institute (BEI), Cornerstone is an authorized distributor of BEI’s content and Exit Planning Tools. We developed the Performance Culture System™ to help clients implement best practices and drive high performance throughout their organization. For more information, visit www.launchgrowexit.com, call (910) 681-1420 or email [email protected].